Nigerian bond yields rose around 100 basis points on Wednesday after JPMorgan said the country would be ejected from a key debt index, while a general uptick in investor sentiment boosted emerging stocks for the second day running.
Markets have generally benefited from hopes for more stimulus from Beijing as well as a possible delay to U.S. interest rate rises. That helped MSCI's benchmark emerging market index up 2.6 percent, while Shanghai's index climbed 2.3 percent and Hong Kong's Hang Seng added 4.1 percent.
On bond markets, emerging dollar bond yields tightened versus U.S. Treasuries by an average 5 basis points.
But Nigerian yields spiked around 100 basis points across all maturities, with the 2024 bond yield rising to 17 percent, up 80 basis points from Tuesday's close, after JP Morgan said it would remove Nigeria from its benchmark GBI-EM index for local currency emerging debt by the end of October. It said currency controls were making transactions too complicated in Nigeria.
The removal from the index will force fund managers to sell Nigerian bonds, triggering potentially significant capital outflows and raising borrowing costs for the government. Nigerian Eurobonds also took a knock with the 2023 issue down 0.75 cents to a two-week low.
Nigerian stocks fell 2.9 percent.
Emerging market assets have sold off over the summer due to worries about a slowdown in China, weakening commodity prices, and the possibility of a U.S. interest rate rise in September.
But weak Chinese trade data on Tuesday raised expectations that Beijing would have to pump more money into the slowing economy if it is to avoid a hard landing. [ID:nL4N1182W1.
Steadier commodity prices helped currencies such as South Africa's rand and Russia's rouble make gains versus the dollar.
Malaysia's ringgit, one of the most beaten down currencies, rebounded in thin trading.
"Emerging market currencies especially have gone from being overvalued to now being undervalued in certain parts, and it is a question of finding a positive trigger for emerging markets while the uncertainty at this stage is still high," said Arko Sen, director, EMEA strategy at Bank of America Merrill Lynch.
Eastern European stocks firmed amid renewed optimism after an upward revision of growth in the eurozone and robust Hungarian trade data. Czech annual inflation also slowed more than expected in August..
A Czech bond auction later on Wednesday could see yields dip into negative territory due to strong demand, supported by an influx of crowns from recent central bank interventions, analysts said.
Ukraine's September 2015 Eurobond dipped 0.5 cents, easing off 10-month highs after holders said in a letter that a proposed debt restructuring deal would be "unfair" if their bonds were not paid out in the shortest proposed terms
source: Reuters
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